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NYC is the next Venture Capitol

March 6, 2014

nytech apple capitolThis post is not about comparing Silicon Valley to NYC.  That’s tired.  Silicon Valley is the gold standard and there is no “next Silicon Valley.”  What this post is about is how NYC has become a unique place to build multi billion-dollar startups. First, to frame the evaluation, it’s important to get the prevailing criticisms of the NY tech scene on the table:

  • We lack talent, particularly technical resources.
  • It is just too expensive to live and to build a startup in New York City.
  • Seed rounds are easy to get funded in NY, but follow-on rounds are difficult.
  • We’re deficient in terms of big exits and content to sell companies early.
  • And finally, NYC is strong in traditional sectors like AdTech, FinTech, Fashion or Media, and nothing else.

While at one point there may have been truth to each of these points, they are simply no longer accurate. To address these topics in some detail, we’ve constructed the following graphic as a summary of the “state” of NYC’s startup ecosystem and why we conclude the city is on the rise as an important venture capital center: skyscraper When you consider the growth of New York as a funding target for venture firms, it’s worth noting that the city has emerged as number 2 or 3 in the US – but more importantly, we’re the fastest growing region over the past decade for financings[29].

usmap
Focusing on NYC, we actually observe great health at every stage since 2006:

  • More than $13.5B in venture financings in more than 2,700 transactions[30].
  • More than 800 M&A transactions, including solid exits between $50M and $1B in the past two years. Notable companies include Admeld, Buddy Media, indeed, MakerBot, tumblr, among many others[32].
  • Critically, we’re seeing the surge of very strong companies toward IPO in the $B+ range, such as AppNexus, mongdoDB and ZocDoc.
  • NYC accounted for 7 or 9.3% of the total number of US VC-backed IPOs for 2013[32]. Additionally, Shutterstock, the most the successful of 2013 NYC tech IPOs was not VC-backed, stands with a market cap of nearly $2.7b.

Sectors It is certainly true we have stars in what are considered NYC’s traditional sectors like Fashion and FinTech. But not as heralded are the world class companies emerging in more tech-heavy sectors such as Hardware and Enterprise Tech – not thought to be NY’s strength. Of note is that 27 of the Business Insider Digital 100 are NY companies.

sectorlistThe data supports the diverse investment activity among sectors in NYC. According to the PWC Moneytree Report, VC investment activity for the period 2012-2013 breaks down as follows[33]:graph1

Software investments dominate VC investments across all stages over the last two years, nearly twice the number of financings for Media & Entertainment.  It’s not surprising that media investments are still important within the NY ecosystem, but a more granular taxonomy shows the following[34]: graph2 Of special note is the acceleration of Internet Commerce, which at 15.6% of all financings over the past two years is catching up to media investments. The X-Factor   There’s no surprise that the NYC tech community is incredibly active and inviting. This is clearly demonstrated by the more than 350 individual tech meet-ups, comprising more than 320,000 members with more than 1/3 of them active monthly. But could community be NY’s X Factor and is its impact quantifiable? NYC tech has had two distinct generations in the past 14 years – the “Internet bubble clean up” period from 2000 to 2005, which prepared us for the beginning of “gear up” period starting in 2006. In just 7 years, we’ve gone from one of many tertiary tech regions, to a top entrepreneurial center in the US. Some great and growing exits and leading companies in their sectors indicate that we’re following the right trajectory toward success. Silicon Valley didn’t “happen” overnight; it took more than 30 years for its ecosystem to mature. New York City appears to be on a faster trajectory, and in the next 2-3 years, there will be no doubt that it has arrived if:

  • our community continues to demonstrate its special nature of support and collaboration, paying it forward to create new generations of founders,
  • the focus of capital remains trained on our startups as a top three recipient of financings in the US, and
  • most importantly, our terrific cohort of leading tech companies racing toward escape velocity, produces billion-dollar, thriving public companies.

** Many thanks to the inSITE Fellows Program and fellows Zak Schwarzman, Patrick Chang and David Lerman for helping to pull together data analysis for this article

Footnotes

1. Partnership for NYC

2. Building a Digital City: The Growth and Impact of New York City’s Tech/Information Center, p. 2

3. LinkedIn Research, Dec 2013

4. Startup Ecosytem Report Part 1, p. 35

5. H1 Base

6. Angel List Research, Jan 2014

7. Fortune

8. NYEDC, p 4 Economic Research and Analysis, Tech Trends August 2013

9. NYC TechCity, p. 1

10. Meetup.com Research, Dec 2013

11. Meetup.com Research, Dec 2013

12. NY Tech Meetup Research, Dec 2013

13. Promoting Entrepreneurship in NYC, NYEDC p2

14. Mark Birch Research

15. Mark Birch Research

16. AON / Partnership for New York, p. 11

17. US News & World Report

18. AON / Partnership for New York, p. 11

19. Partnership for New York City, NYC Jobs Blueprint, p. 25

20. Academy for Software Engineering Bronx Academy for Software Engineering

21. The Computer Science Education Foundation of New York City 22. WNYC 23. NYC Real Estate Broker’s estimates, Jan 2014

24. Partnership for New York City, NYC Jobs Blueprint, p. 13

25. NYC TechCity, p. 8

26. NY VC Almanac, p. 7

27. The Atlantic / Martin Prosperity Institute

28. National Low Income Housing Coalition Report, March 2012 http://nlihc.org/sites/default/files/oor/2012-OOR.pdf

29. The Atlantic / Martin Prosperity Institute Updated with 2012 Data

30. NY VC Almanac, p. 7

31. PWC / NVCA Moneytree Report Feb 2014, data from Thomson Reuters

32. Wilmer Hale Research, Feb 2014.

33. PWC / NVCA Moneytree Report Feb 2014, data from Thomson Reuters

34. Thompson One

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